Draft Fixed-Term Employees (Prevention of Less Favourable Treatment) Regulations 2002 and Draft Part-Time Workers (Prevention of Less Favourable Treatment) Regulations 2000 (Amendment) Regulations 2002

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Alan Johnson: I do not think that there would be a specific public sector justification. Before I deal with that specific point, however, I repeat what I said in Committee on the Bill, which is that the further and higher education sectors cannot be lumped in with the public sector; although they receive public funds, they are self-governing and, in the strict sense, would not qualify as public sector institutions. As for the hon. Gentleman's NHS example, given that the money to fund the post would run out after a certain time, regardless of whether it was in the public sector or the private sector, the employer would be able to use that as objective justification. We believe that such an argument would be relevant.

Mr. Hammond: Would the employer be equally able to use the limited nature of the funding as objective justification for paying the fixed-term employee a lower rate?

Alan Johnson: I very much doubt it. I am getting questions thrown at me, and having to think on my feet, but I am sure that the hon. Gentleman recognises that there is a difference between the objective justification for rolling over a contract for more than four years and an objective justification for not paying the rate for the job. My initial reaction to the second example would be that that would not count as objective justification.

The hon. Gentleman also asked for an explanation of the Government's thinking about the two-year period as opposed to the four-year period. If he thought that the limit to the rollover should be two rather than four years, he could have tried to amend the Employment Bill. That argument was put by the Association of University Teachers and, as I recall, by

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the TUC. As for our philosophy, we consulted at length on the matter in 2001 and heard different views. The majority of those who contributed to the consultation agreed that four years was about right, because that period will prevent the abuse that we have been talking about. We do not believe that fixed-term contracts should be used as a substitute for permanent employment. The measure addresses that point without affecting the flexibility—which we have discussed many times—of employers who need to recruit people on temporary contracts.

The hon. Gentleman mentioned temporary workers. A Commission proposal is out for consultation. He said that I said last week that the comparator for temporary workers should be another temporary worker, and asked whether that was inconsistent with the approach here. What I said last week was that UNICE, the employers organisation in Europe, said that it would be sensible to compare an agency worker with another agency worker. The difference between agency staff and fixed-term contract staff is that agency staff do not work for the employer with whom they are placed; their relationship is with the agency. That is the difference between the proposed directive on agency workers and the proposals for part-time workers and fixed-term contract staff.

The hon. Gentleman also asked a question that has been put to me during the extensive consultation: are we leaving a loophole that will enable unscrupulous employers to move to agency workers? I do not think that we are. Not only are there differences between agency workers and fixed-term contract workers—agency workers are likely to be more expensive because employers have to pay agency fees, VAT and possibly a substantial temp-to-perm fee if they decide to take them on permanently—but when the directive was agreed by the social partners, they specifically excluded agency workers from its provisions. We do not intend to include agency workers, given that the social partners made that explicit exception.

Mr. Hammond: Does the Minister acknowledge that an employer, unscrupulous or otherwise, can avoid the impact of the regulations by setting up a captive agency? That happened in the building industry in response to changes in employment practice. Could a large employer, directly employing many fixed-term workers, set up an agency to do that? He would not incur agency fees, but he would avoid the intention of the regulations.

Alan Johnson: That is extremely unlikely for three reasons. If we take the figure given by the hon. Gentleman, 95 per cent. of those surveyed by the DTI in 1998 applied the same terms and conditions, so only a small minority—not sufficient to set up a separate agency—is involved. Secondly, there is a great deal of flexibility in the directive, and thirdly, those same people will be considering the employment agency directive that we are tackling, which brings its own problems. It covers training and other elements, such as permanent contracts. Therefore, although we understand the hon. Gentleman's concern, we do not attach great weight to his fear.

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The hon. Gentleman made a point about highly paid and highly skilled individuals having to become permanent because the regulations will prevent employees from accepting higher pay instead of pensions or other improved terms. That is simply not the case. In the light of objective justification, the package approach and the fact that people may want to remain fixed-term contract employees even beyond the four years, any challenge would have to take place in an employment tribunal. It is unlikely that an employee who is happy to have their fixed-term arrangements extended will go to an employment tribunal.

Mr. Hammond: Will the Minister give way?

Alan Johnson: We are running out of time, but I give way to the hon. Gentleman.

Mr. Hammond: There is a specific provision that prevents contracting out. The Minister outlined a benevolent scenario in which employer and employee were both happy and there was no danger of the employer being taken to a tribunal after the employment was terminated for unfair dismissal, but that cannot be assured because the regulations provide that people cannot contract out of the arrangements.

Alan Johnson: Yes, we made that provision because individuals were being railroaded into contracting out. First, those highly paid individuals can stay highly paid because of the package approach. Secondly, they can be dealt with under the objective justification. Thirdly, if they are unhappy with that situation they may not contract out, but for an employer to be dragged before an employment tribunal a case must be submitted to the employment tribunal. That is unlikely to come from a satisfied employee who wants to continue beyond the four-year period.

The hon. Gentleman referred to the anomaly between event-based and task-based fixed-term contracts and to the introduction of dismissal. The point is rather esoteric, but the hon. Gentleman is right. The regulations include the provision that a fixed-term contract employee will now be deemed to have been dismissed when coming to the end of a fixed contract or the end of the event. It is a point of law that, unless the classification is dismissal, a fixed-term contract employee whose job is terminated before that period cannot claim that they have been unfairly dismissed for being pregnant, for instance, which would be an offence. The regulations bring legislation for fixed-term contract staff in line with that for permanent staff.

The hon. Gentleman asked about access to training and said that the measures could lead to a reduction in training for permanent employees. That is unlikely, however. Research has been carried out by Booth, Francesconi and Frank—the famous band who took over from Crosby, Stills and Nash on their last world tour. [Laughter.] Their research shows that fixed-term employees receive significantly less training than permanent employees, which can result in an lifetime earnings gap. We must address that problem. The hon. Gentleman is seeing shadows if he believes that the measure will reduce training for permanent employees.

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The hon. Gentleman had some fun with the RIA and the wide-ranging figures. Once again, I depend on the great Booth, Francesconi and Frank, whose calculations on productivity are supported by the 1998 workplace employee relations survey. The survey was comprehensive—indeed, it was the biggest of its kind and it is being copied by countries throughout the world. We use it for drawing up the RIA, but the reason for the disparity is that we cannot possibly determine whether the differences in pay and conditions can be objectively justified until the regulations are in force.

The hon. Gentleman's final point was about how we will deal with the transitional arrangements. We intend to ensure that people under a contract that provides lesser terms and conditions on pay, pensions, training and so forth come up to the same conditions. They cannot first exhaust the contract and then look to the regulations; these measures must come into play from 1 October. However, the consecutive periods begin from 10 July, which is when the clock starts ticking for the four-year period. There is, therefore, a difference between the two provisions.

Mr. Hammond: First, is there any mechanism to allow an employer to break a fixed-term contract that becomes onerous as a result of what is effectively retrospective legislation? Secondly, the Minister said that the number of objectively justified cases will not become clear until such cases have been tested under the regulations. How many additional tribunal cases do the Government expect as a result of the regulations?

Alan Johnson: The answer to the last question is 700, as set out in our regulatory impact assessment. On the first question, employers have been expecting the legislation since the fixed-term work directive was agreed at European level three years ago. The transposition period was to come into effect on 10 July last year or on 10 July this year, so employers had plenty of notice that the legislation was being introduced. In any case, a late wire from the course tells me that breaking a contract just because of the regulations will represent unfair dismissal.

The hon. Gentleman asked for a precedent to regulation 12.1, and it is in section 41 of the Sex Discrimination Act 1975. He also talked about the armed forces. We consider them to be different, and I gave our reasons during the passage of the Employment Bill, when we discussed the right to request flexible working. It is unfair of him to suggest that we are excluding large lumps of the public sector. We exclude the armed forces because they have a specific and unique role as a result of the requirements placed on them. That is why the directive excludes them.

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